On the flip side, we saw active transactions in
corporate bonds over the week. The market was going through consolidation,
while focus was on higher quality papers along the AAA segment, which
included Aman, PLUS and Nur Power tranches. Aside, we also noted decent
trading interest on short term bonds, with maturity less than 3 years. We
suspect the high trading volumes were due to quarterly portfolio
rebalancing pairing with cautious sentiment ahead of the upcoming MPC
meeting.

Ringgit ABS market was quiet as only RM40 million
worth of papers were transacted over the week, while trading interest
concentrated was on Cagamas MBS Aug’20, which contributed half of the
weekly volume.

US Treasury yield curve flattened as the longer
end rallied, after the market noted the neutral statement made by Federal
Reserve in the latest FOMC meeting. Meanwhile, we saw thinner bidding
interest at Treasury auctions of shorter dated papers (2T, 5T and 7T) held
over the week, as bid-to-cover ratios were a tad lower in general. In
addition, indirect bidders showed stronger buying interest in recent
auctions, compared to the prior auctions.

Asian dollar credits were seen moving sideways, as
an early rally resulted in quick profit-taking activities by midweek.
Newer issues remained upbeat, as AmBank maturing 2019 tightened from issue
spread of 150bps to 137bps, while China Hongqiao was traded higher to
103.28pts ahead of weekend.

RAM Ratings has reaffirmed
the AAA/Stable/P1 financial institution ratings of HSBC Bank Malaysia Berhad
(HSBC Malaysia or the Bank) and the AA1/Stable ratings of its RM1 billion
tier-2 subordinated bonds. The 1-notch differential between the Bank’s long-term
financial institution rating and that of its subordinated bonds reflects the
subordinated nature of the latter to the Bank’s senior unsecured obligations.The ratings incorporate
HSBC Malaysia’s strong domestic franchise and long-established market presence,
in addition to its robust funding and liquidity profile, solid profitability
and capitalisation as well as healthy asset quality. The Bank, wholly owned by
HSBC Holdings plc (the Group), is among the leading locally incorporated
foreign banks in Malaysia. Malaysia is among HSBC Holdings plc’s 20 priority
markets, on top of being one of the 2 global hubs for HSBC Amanah – the Group’s
Islamic banking business. Reflective of its prudent
risk management, HSBC Malaysia enjoys healthy asset quality; its gross
impaired-loan ratio stood at 1.7% as at end-December 2013. However, its
credit-cost ratio (0.4% in fiscal 2013) has always been relatively higher as it
has a slightly larger exposure to unsecured financing than the industry
average. After 2 consecutive years of double-digit growth in 2010 and 2011,
HSBC Malaysia has adopted a more cautious stance and slowed down its lending
since 2012. Last year, the Bank expanded its loan books by 6%; its growth rate
is likely to remain modest moving forward. HSBC Malaysia boasts a high
proportion of individual as well as current- and savings-account deposits.
Although its loans-to-deposits ratio has been increasing, it remained at a
comfortable 75% as at end-December 2013. The Bank also has a very strong
liquidity profile, with its Basel III liquidity coverage ratio well in excess
of 100%. At the same time, HSBC Malaysia boasts a solid loss-absorption
capacity, supported by a return on assets of 1.9% and a common-equity tier-1
ratio of 11.3%.

Prospects bright for Philippines retail

High levels of
liquidity and continued solid growth in the domestic economy are feeding into
the Philippines’ retail sector, with sales rising on a tide of improving
consumer sentiment. However, the central bank could move to take some of the
heat out of the market in an effort to counter the creeping inflation fuelled
by supply side pressures.According to the latest
Bangko Sentral ng Pilipinas (BSP) consumer expectations survey released in
mid-June, the confidence index rose ... Read
more.

Consumer prices in Hong Kong, China rose 3.7%
year-on-year (y-o-y) in May, the same rate of increase as in April. Consumer
price inflation in Japan accelerated to 3.7% y-o-y in May from 3.4% in April
amid sharper price increases for food, transportation, and utilities. Consumer
price inflation in Singapore climbed to 2.7% y-o-y in May from 2.5% in April
led by hikes in transport costs. On a month-on-month (m-o-m) basis, consumer
prices in Singapore rose 0.5% in May. In Viet Nam, consumer price inflation
increased to 5.0% y-o-y in June from 4.7% in May on the back of price hikes in
food, housing, and transport costs.

*Hong Kong,
China’s merchandise exports grew 4.9% y-o-y in May following a 1.6% fall in
April, while its merchandise imports expanded 3.7% y-o-y in May after recording
2.4% growth in April. In the Philippines, merchandise export growth slipped to
1.3% y-o-y in April from 12.4% in March, and merchandise import growth fell to
3.0% in April from 10.6% in March.

*The Republic
of Korea’s current account surplus widened to US$9.3 billion in May from US$7.1
billion in April. Hong Kong, China’s current account balance was in a deficit
position amounting to HKD6.2 billion in 1Q14 after posting a surplus of HKD16.4
billion in 4Q13.

*Manufacturing
production in the Republic of Korea dropped 2.3% y-o-y in May following 2.7%
growth in April. Singapore’s manufacturing output contracted 2.5% y-o-y in May
after recording 5.3% growth in April.

*Local currency
(LCY) corporate debt issuance in the Republic of Korea amounted to KRW10.6
trillion in May, down 0.1% m-o-m, according to data from the Financial
Supervisory Service (FSS). Issuance of asset-backed securities (ABS), bank
debentures, and bonds issued by financial companies were up from a month
earlier, while issuance of non-financial corporate bonds was down on a m-o-m
basis.

*Greenland, a
property developer in the People’s Republic of China (PRC), last week priced a
US$600 million 10-year bond at a coupon rate of 5.875% and a US$400 million
5-year bond offering a coupon of 4.375%. Korea Gas Corporation priced a US$500
million 12-year bond at a coupon rate of 3.5% last week. Krung Thai Bank sold a
US$700 million Basel III-compliant 10.5-year bond at a 5.2% coupon last
week.

*Government
bond yields fell last week for most tenors in Hong Kong, China; Malaysia; the
Philippines; Singapore; and Viet Nam. Yields rose for all tenors in Indonesia
and for most tenors in the Republic of Korea. Yield movements were mixed in the
PRC and Thailand. Yield spreads between 2- and 10-year tenors widened in the
PRC, the Philippines, and Viet Nam, while spreads narrowed in Hong Kong, China;
Indonesia; the Republic of Korea; Malaysia; Singapore; and Thailand.